Don`t Keep Seniors Off The Payrolls

July 05, 1991

Economists have been talking for some time about a coming labor shortage. A baby bust, early retirements and an education system that isn`t training youth for tomorrow`s jobs will combine, they say, to put a squeeze on America`s skilled work force.

Improved education and training can help build a work force able to compete in a global economy, but there still will not be enough young people. Part of the gap can be closed by allowing more skilled immigrants into the country. Some of the shortage could be made up by the elderly.

First, however, government and employers will have to remove some of the disincentives that keep older workers off the payrolls. One of the worst is the earnings limit for Social Security recipients.

The limit was imposed in 1939 when it made sense to encourage older workers to retire so younger workers could move into scarce jobs.

But today, when more companies would like to hold on to their most experienced and competent older workers, those employees are declining to work or limiting their job hours to avoid forfeiting Social Security benefits.

This year, people from age 62 to 64 may earn up to $7,080 without penalty. For every $2 earned beyond that, benefits are reduced by $1. For seniors from 65 through 69, the limit is $9,720. In this group, benefits come down by $1 for every $3 earned over the limit. The surtax expires for people over 70.

When state, local and Social Security taxes are added, retirees who want to work can end up paying astronomical marginal tax rates of 50 percent and higher-hardly any encouragement to stay on the job.

Since its inception, the tax has been liberalized more than a dozen times, but efforts to repeal it have failed. U.S. Rep. Dennis Hastert (R-Ill.) has more than 250 co-sponsors for a bill to repeal the tax for people over 65. With that many lawmakers signed on, it would seem a cinch, but House Ways and Means Chairman Dan Rostenkowski won`t let the measure even get to the House floor for debate.

Rather than recognize repeal as a positive for economic growth, Rostenkowski and other opponents view it as a revenue loser that will cost the Treasury billions of dollars in forfeited benefits. The Congressional Budget Office has estimated that repeal could cost more than $26 billion over five years.

But Hastert and other proponents argue logically that repeal would entice retirees back into the labor market. He estimates 700,000 people would return; other analysts say that estimate is low. Even at the lower number, any shortfall in forfeited benefits would be more than made up in higher income taxes, Medicare payments and Social Security contributions.

More important, repeal would make it easier for America to tap a valuable, underutilized asset. Employers could keep or hire older workers and draw on their wisdom, productivity and experience.

The skill and expertise of the elderly could be used to train future workers, while bringing in more tax dollars and helping America stay competitive in the 21st Century.